Tepid private consumption and a weaker net exports position will weigh on Argentine real GDP growth in 2015. A negotiated settlement allowing for the resumption of coupon payments on sovereign bonds in early 2015 will improve investor sentiment somewhat, but a substantial uptick in investment is unlikely while the currentadministration remains in power. Pre-election spending and rising interest payments will see Argentina’s primary and nominal budget deficits widen in 2015. The Argentine government will tap its foreign reserves in order to finance the budget shortfall, exacerbating the country’s weak external account position. The Argentine government will allow the peso to depreciate over the coming months, as a drop in foreign currency reserves keeps downwards pressure on the exchange rate. We expect a more substantial devaluation to occur after the October 2015 presidential election, as political pressure will preclude a major currency adjustment ahead of the poll.

Major Forecast Changes

We revised down our 2016 exchange rate forecast, as we believe that an easing of capital controls under a newly-elected government will drive a sharp depreciation in the peso.

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